International gaming technology company reduces debt in impressive fashion
International Game Technology (NYSE: IGT ) has significantly reduced its debt and is likely to hit management's debt targets in the next few years.
Fitch Ratings said the gaming equipment maker expects earnings before interest, taxes, depreciation and amortization to increase to 3.6 times last year, supported by strong profit growth in the third quarter. This means IGT is on the right track to reduce debt threefold by 2026.
Management's 2025 net leverage target is 2.5x to 3.5x, with net leverage target in the middle of that range as of September 30, 2023. Fitch focuses on headline metrics and excludes minority distributions from Adjusted EBITDA (due to a leverage differential of approximately 0.5x). the latter),” the ratings agency noted.
Fitch affirmed IGT's corporate credit rating at 'BB+' - a junk rating. The rating's outlook is "stable."
Selling IGT Assets Helpful
Previous asset sales have helped IGT generate cash, which has been used to reduce debt, and this theme may repeat itself in 2024. Last June, the company announced it was considering "strategic alternatives" for its global gaming and PlayDigital divisions.
IGT has the potential to merge, sell or spin off these companies. The sale of the global gaming unit alone, which could fetch between $4 billion and $5 billion, could go a long way toward funding IGT's debt-reduction plan and shareholder rewards package.
"In 2021-2022, IGT sold its Italian B2C gaming business and Italian payments business, with proceeds primarily used to repay debt," Fitch added. "As of the second quarter of 2023, IGT is conducting a review to explore its A strategic alternative in the gaming and digital space, as the company's EV/EBITDA multiple continues to lag peers. Unless the status quo is maintained, Fitch expects that part of the proceeds may be used to further deleverage while strengthening IGT's position in the upcoming lottery. liquidity in the payment cycle.”
While divestitures may be good for IGT, the company has recently been criticized for its slow approach to such transactions.
Advantages of IGT Selling Slot Machine Units
IGT could potentially gain from the sale of its global gaming unit. Not only is there rumored to be strong interest in the company, but recurring capital needs are impacting the company's ability to generate free cash flow.
In addition, exiting some capital-intensive businesses will allow IGT to better focus on its highly profitable lottery division, which accounts for approximately 70% of EBITDA.
"About 70% of IGT's EBITDA comes from lotteries, which are resilient and less susceptible to economic shocks and other threats common elsewhere in the gaming industry," Fitch concluded. "It also compares favorably with other forms of gambling. Characteristics such as low cash flow volatility, the ability to maintain stable low to mid-single-digit growth rates even during disruptive times, and higher profit margins while benefiting from significant barriers to entry." Regulatory Oversight and Capital Intensity . "
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Source: www.casino.org
